It’s common to use credit for small, day-to-day transactions as well as large purchases, such as home mortgages. However, if you want to utilize the benefits of borrowing, you’ll need to make sure your credit score is in good shape. One of the first steps is understanding what makes a credit rating go up and down. Here’s a closer look at some of the biggest factors.

What Makes Your Credit Score Change?

1. Payment History

Your payment history is heavily weighted in credit score calculations. Credit card companies and banks that issue mortgages want to see that you consistently make on-time payments. Missing payments could signal that you’re in financial trouble or that your debt obligations aren’t a top priority. Consistently paying your bills is one of the best things you can do for your rating. 

2. Length of Time 

Issuers of credit cards, mortgages, and other credit products also want to know how long you’ve been using credit. It takes at least a few months of consistent use to build up your score.

In general, a longer credit history boosts your score, assuming you’ve been making your payments. Consistently using your credit card and making payments on loans will build up this part of your score fairly quickly. 

3. Credit Utilization 

Your credit score won’t benefit you much if you receive a credit card but never use it. Credit utilization, which is a ratio of the amount of credit you’re using compared to the amount that you have available, is another key component of your score.

Lenders want to make sure you aren’t using too little of your available credit, but even more importantly, they want to verify that you’re not using more than you should be since this could indicate that you’re low on cash. Stay well below your limits to avoid issues with utilization. 

4. Credit Portfolio

Diversity is an important part of a healthy score. Over time, your mix of credit sources may grow through a student loan, a car loan, a mortgage, various cards, and other types of loans that impact your credit. As long as you’re keeping up with all of your debt obligations, having a diverse credit portfolio with multiple products is a good sign for your rating. 

The professionals at Chattanooga First Federal Credit Union can help you find strategies to build up or recover your credit score. This credible and dependable financial institution serves residents across Hamilton County, TN. They offer a range of personal and commercial financial products for their clients, from mortgages to personal savings accounts. Call (423) 267-7621 to speak with a knowledgeable representative or visit their website to learn more about their services.